Federal Red Ink Shrinks Money for States

President Bush is offering states no help in paying for congressionally ordered changes to driver's licenses and would foist new costs on states to provide food for low-income pregnant women while slashing money to revitalize poor neighborhoods.

One day after Bush released his $2.77 trillion proposed 2007 budget , analysts scouring the document concluded that while it is chock full of savings for the federal government, it could spell new financial responsibilities for states.

"This budget continues to chip away at the states' ability to provide services," said Iris Lav, the Center's deputy director.

As part of Bush's campaign to halve the federal deficit — expected to reach an all-time high of $423 billion this year — by 2009, he has proposed squeezing savings from an array of domestic spending programs, while boosting funding for homeland security and national defense.

Less money would flow to states to help the poor under Bush's budget, the Center concludes. The president proposed to nix the HOPE VI grant program that funds the demolition and redevelopment of public housing units and to decrease by nearly one-third Community Development Block Grants, which aim to revitalize poor neighborhoods. The proposed budget also would zero out a Centers for Disease Control grant to states that funds preventative health care for the needy as well as the Community Supplemental Food Program that pays for food for 40,000 low-income elderly people a year.

If adopted by Congress, the budget proposal also would take a toll on federal support for law enforcement. Funding for drug-free schools would be eliminated, and money for community policing would be significantly slashed.

In addition to eliminating or reducing several key state grant programs, Bush's proposal also would saddle states with additional unfunded mandates, said Michael Bird, senior federal affairs counsel for the National Conference of State Legislatures (NCSL).

For example, the budget proposal would create a new requirement that states match a portion of the federal funding for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), which assists 7.5 million low-income pregnant women and children up to age 5.

According to NCSL, the plan doesn't offer any aid to states to help them comply with the federal REAL ID Act, which requires states in two years to revamp how they issue driver's licenses to apply strict new national standards passed by Congress in May 2005.

Although efforts to crack down on illegal immigration are gaining momentum across the country, Bush's budget would do away with reimbursements to state and local governments for jailing illegal immigrants.

Detaining illegal immigrants already is creating huge budget problems in Arizona. In 2004, the state spent $77 million incarcerating more than 4,000 illegal immigrants.

On the heels of a five-year $6.9 billion reduction in Medicaid spending approved by Congress last week (Feb. 1), Bush proposed a second round of cuts to expensive entitlement programs that provide assistance to the poor, elderly and disabled.

The administration's effort to curb the growth of entitlements over the next five years includes $13.6 billion in savings from the state-federal Medicaid program for 53 million poor and disabled Americans and a $36 billion reduction in Medicare, the federally funded health care program for the elderly.

Advocates for the poor are concerned the proposed entitlement reductions could poke holes in the nation's safety net, and states are worried they will be forced to pick up the slack in the absence of federal funding.

The good news for states is that many of the items in the administration's budget plan that give states heartburn have been proposed before and rejected by Congress. For example, Congress previously has rejected Bush's proposal to consolidate several economic and community development programs.

"These are old, tired ideas. Nothing new," said Bird, of NCSL.

Lawmakers could have even less appetite this year for tough spending cuts with midterm elections in November.

Some elements of Bush's budget proposal that could impact states include:

Streamlining government - The administration hopes to squeeze $15 billion in savings by consolidating or eliminating 141 federal programs. More than one-fifth of those cuts — $ 3.5 billion — are in education, including money for the arts, student loans, early education and adult literacy. Congress cut or eliminated 89 of the 154 programs Bush targeted for savings last year, and several of the survivors — such as loans for low-income college students — are back in the crosshairs this year. ( Click here to read more .)

Tax cuts - Bush has called again for Congress to make permanent the income tax cuts passed in 2001 and 2003 and is proposing a range of additional cuts and tax breaks. Federal tax reductions could impact states because states often piggyback off the federal tax system.

National Guard - The administration backtracked from earlier plans to cut the Army National Guard and will fund the citizen-soldier force to the tune of 350,000 members. Last week, word leaked that the administration planned to keep the Army National Guard at its current level of about 333,000 members, rather than budget for a full force of 350,000. A coalition of governors and U.S. senators quickly rallied against the change and convinced the military to alter its plans.

Medicaid - Besides cuts, Bush's spending plan includes $100 million annually to fund a new program called Cover the Kids that is designed to boost enrollment for children in Medicaid and the State Children's Health Insurance Program (SCHIP), which covers 6.1 million low-income children who don't qualify for Medicaid. It also would change arcane rules governing the flow of Medicaid money between Washington, D.C., and state capitols to keep states from using accounting ploys to get larger shares of federal matching funds. ( Click here to read more .)

Education - The overall federal education budget would be cut by $3.1 billion or 5.5 percent from 2006 levels by eliminating 42 education programs. The president also wants to launch new initiatives to strengthen math and science achievement and reform America's high schools. ( Click here to read more .)

Homeland Security - The administration proposed cutting homeland security grants to cities and states by about $400 million, to about $2.57 billion. As part of these cuts, the agency would redirect money to grants that focus more on risk, rather than a high flat rate for every state. Programs for firefighters and police terrorism prevention would be eliminated or reduced. Also, starting in 2007, states must coordinate their emergency communications with the federal government to receive homeland security grants.

Illegal Immigration - Funding would increase for programs aimed at illegal immigration including: a research service that tracks down citizenship inquiries for state and local authorities and a partnership that trains law enforcement officials in immigration law. In a boon to Southwestern states, the Border Patrol would add 1,500 new agents.

Energy - With heating and electricity prices soaring, the federal budget proposal would cut $91 million from state grants to help low-income citizens make their homes more energy-efficient — a 29 percent reduction. Research into some new energy technologies is one of the few winners this year, with a proposed increase of $66 million more for solar energy technology, $41 million to develop hydrogen fuel and fuel cells, and $29 million for biofuel research. Other technologies did not fare so well: $23 million to improve geothermal energy would be eliminated along with $1 million for hydropower.

Environment - State-run environmental programs would be cut by a total $416 million, including a proposed $199 million reduction in money for building sewage and water treatment plants and $35 million less for clean-air programs, said Steve Brown, executive director of the Environmental Council of the States.

Transportation - States would not see their road and bridge building money cut under the president's budget. Funds for highway building, which come from federal gasoline taxes collected in the states, would rise 9.6 percent to $39.9 billion, according to the American Association of State Highway and Transportation Officials. However, the proposed budget would reduce funding for Amtrak by $394 million and eliminate a $287 million program that lends money for rail improvements.

Toll roads - The president's budget proposed a $100 million pilot program for five states to study new ways to pay for future transportation projects, especially through tolls. The program is necessary because of predictions that federal gasoline taxes that are used to pay for road and bridge projects will not keep pace with needs, according to the U.S. Department of Transportation.

About The Pew Charitable Trusts

The Pew Charitable Trusts is driven by the power of knowledge to solve today's most challenging problems. Pew applies a rigorous, analytical approach to improve public policy, inform the public and invigorate civic life.

Trend

Our newest publication offers diverse perspectives on the issues that transcend today’s porous international borders.Read the first issue›